Seminar on Bank Branch Audit

26th March 2023

2
 Audit Plan
Your subtitle here

An Audit plan is the specific guideline to

be followed when conducting an audit.

• It helps the auditor obtain sufficient

appropriate evidence for the circumstances.

3
 Auditing Process
4

The whole auditing process can generally be divided into

three different phases.

Proper Planning is required at all the three phases.

 Auditing Process
5

Reporting phase Audit planning phase

deals with making conclusions, includes procedures such as
reporting to any necessary gaining an understanding of the
adjustments to management, clients and its business, making
and issuing the independent risk and materiality
auditor’s report. assessments, determining
an audit strategy, and
determining the type of
evidence to collect ,based on the
risk levels.

Performing Phase

refers to the means of collecting evidence.

 Assumptions
The auditor Should have knowledge of below mention
points :
Banking Industry, Government Policies and history of the bank and
branch allotted to you

Banking terminology and schemes should be well understood .

Rules & Regulations applicable to the Bank.
Products handled by Bank and Complexities involved.

Types of banks:
Nationalized banks, Co-operative banks,
Private sector banks ,Foreign banks,
Regional rural banks.

6
 Assumptions
Business undertaken by bank branches apart from
Routine :
Foreign exchange business, NPA recovery business, Service
branches dealing in Clearing house operations business.
Corporate banking and Industrial finance business, Personal
banking business
Housing finance business, SSI business
Agricultural finance business

Recent Changes in Interest rates in various product and Schemes.

Knowledge about CAAT tools.
Applicability of Accounting Standards.
Applicability Auditing and Assurance Standards.

7
 Basic expectation from Auditor

Integrity, objectivity and independence

Confidentiality
Skill and competence
Working papers
Planning
Audit evidence
Evaluation of accounting system and internal control
Opinion and report
Pre Commencement of Audit
9
 What we shall talk
10

 Before we start

 Letter seeking information

 Changing scenario in the banking industry

 Some of the Laws applicable to the Banks

 RBI regulations & other standards

 Important Standards on Auditing

 Before we start-Ground Work
11

Acceptance letter to appointing authority

Engagement Letter and scope of work

Communication to the previous auditor

Basic Information from the branch.

Evaluation of Internal Controls

Prepare Audit Program

Overall Time & Manpower Planning

Audit Files –

 Permanent Audit File

 Working Papers File
 Letter seeking information
12

 Before actual commencement of audit a letter may be written to the

management of bank asking for following information:
1.Organizational chart of bank and bank branch.
2.List of departments in the bank branch along with 
name of head of department.

3.Authority and responsibility of each officer in 

the bank.

4.Details of software used by bank.

5.List of reports generated by the software.

6.Special feature of each banking product.

7.Areas where work has been outsourced to
outsiders

8.Accounting policy followed by the bank.

9.Copies of last year annual accounts and
current year quarterly/half yearly accounts,
10.Copy of day book.

11. Information of top 10 borrowers for each kind of loan.

12. Instructions issued by Head office for closing of

accounts.

13
 Changing scenario in banking industry
14

 Focus on frauds
CHANGE
 Impact of IBC
AHEAD 

 Recapitalisation of PSB’s

 GST, E-TDS in Bank Branch Audit and its Reporting 

 Bank mergers
 Some of the Laws applicable to the Banks:
15

 The Banking Regulation Act, 1949

 The Companies Act, 2013
 The Reserve Bank of India Act, 1934
 Prevention of Money Laundering Act, 2002
 Securitization & Reconstruction of Financial Assets &
Enforcement of Security Interest Act, 2002
 The Foreign Exchange Management Act
 The Income Tax Act, 1961 (Tax Audit)
 CGST/SGST Act
 The Stamp Act of the States/ The Indian Stamp Act
 Negotiable Instrument Act
 Law of Limitation
 RBI regulations to be followed
16

 IRAC norms and other related circulars

 Frauds classification and reporting

 Cash Reserve Ratio (CRR)/Statutory

Liquid Ratio(SLR)
 Capital Adequacy

 Exposure norms

 Guarantees and co-acceptances

 Wilful Defaulters
 Other standards to be followed
17
SA 315 – Identifying
and Assessing the Risks
SA 200 –Basic of Material
SA 310 – Knowledge of Misstatement
Principles Governing
Business
Audit. through Understanding
the Entity and Its
Environment

SA 300 – Planning an SA 320 –Materiality in

SA 210 – Terms of Audit
Audit of financial Planning and
Engagement
statements Performing an Audit

SA 220 – Quality SA 400 –Risk

SA 230 – Audit
Control for an Audit of Assessment and Internal
Documentation
Financial Statements Control SA
 Other standards to be followed
18

SA 700 -Forming an
SA- 701 - Key Audit
SA 500 –Audit Evidence Opinion and Reporting
Matters
on Financial Statements

SA 705- “Modifications
SA 520 – Analytical SA-600 -Using the work to the Opinion in the
Procedures of Another Auditor Independent Auditor’s
Report

SA 706- Emphasis of
Matter Paragraphs and
SA 580 –Written Other Matter
SA 530 –Audit sampling
Representation by Paragraphs in the
Management Independent Auditor's
Engagement and Quality
Control Standards
During the audit

19
 What we shall talk
20

Audit Program

Work at branch

Audit Performance

Internal controls in bank branch

Additional Controls for Computerized

Environment
 Audit Program
21

Define broadly the scope of audit.

Identify the thrust areas.
 Set materiality levels standards for each area.
Lay down over all time schedule.
Training to Audit staff and special skill if required.
Weak areas identified during the Audit be given extra focus.
 Physical verification of cash and other securities / Sensitive
Accounts
 Frauds / Sundry Assets / Suspense Account / Inter Branch
reconciliation
Contingent liabilities
 Work at Branch
22

1.Previous Years 4.RBI Inspection

7.Audit Trail
Audited Return Report.

5.Various 8.Manual
2.Concurrent
Other Audit Registers /
Audit Report.
Reports Records

9.Core
3.Internal 6.Review
Banking
Inspection Compliance of
Solution /CBS
Report these Reports
System
 Audit Performance
23
Analyze and
Evaluate the errors
in samples
selected

Work as per Audit

Qualify in Audit
Program and
Report if necessary
schedule

Prepare reports Get the

according to rectification /
requirement MOC Passed
 Internal controls in bank branch
24

Banks have a system of job rotation among staff.

Work of one staff member is invariably supervised /

checked by another staff member, irrespective of the
nature of work.

The financial and administrative powers of each official / each

position are fixed and communicated to all persons concerned.

Branch managers have to send periodic confirmation to their controlling

authority on compliance of the laid down systems and procedures.

All branches of a bank have a unique code number which is circulated amongst all
offices of the bank
Internal controls in bank branch
25

All books are to be balanced periodically, Balancing is to be confirmed

by an official.

Particulars of lost security forms are

immediately advised to controlling so that
they can exercise caution.

Fraud prone items like currency, valuables, draft forms, term deposit

receipts, travellers cheques and other such security forms are in the 
custody of at least two officials of the branch.
Additional Controls for Computerized Environment
26
The system maintains a record of all log-ins and 
log-outs.

If the transaction is sought to be posted to a dormant (or

inoperative) account, the processing is halted and can be
proceeded with only with a supervisory password.

The system checks whether the amount to be withdrawn is within

the drawing power.

The system flashes a message if the balance in a lien account would fall
below the lien amount after the processing of the transaction.

Access to the system is available only between stipulated hours and specified days only.
Additional Controls for Computerized Environment
27

Individual users can access only specified directories and files,

A user timeout is prescribed.

Exception situations such as limit excess, reactivating

dormant accounts, etc. can be handled only with a valid
supervisory level password.

Once the end-of-the-day process is over, the ledgers cannot be opened without

a supervisory level password.
Completion of audit

28
 What we shall talk
29

 The benefit of Planning in branch audits

 Expectations from branch auditors

 Documentation

 Statutory Audit Report

 LFAR
 Importance\ Benefits of planning
30

 Limitation of time

 Complex transactions -Data constraints- invisibility of data

 Appropriate attention to important areas of the audit

 High volume

 Focus on NPA

 Possibility of frauds

 Professional responsibilities
 Expectation from branch auditors
31
 From Eyes and ears of CSA

 Effective Reporting

 Work in full adherence to professional

standards to add comfort to

CSA/RBI/Shareholders/Government
 Compliance with: -

 RBI / ICAI Guidelines

 Terms of Appointment
 Accounting Standards
 Standards on Auditing

 Completion of work in time

 Documentation

SA -230
work not documented
means work not done

Documentation  is the working

papers prepared and obtained by
the auditor and retained by him in
connection with performance of
an audit.

32
 Documentation
33

Audit Documentation depends on factors such as:

Nature of Identified Significanc

Nature and Audit
Size and the audit risks of e of the
extent of methodolo
complexity procedures material audit
exceptions gy and
of entity to be misstateme evidence
identified tools used
performed nts obtained
 Documentation
34

Examples of Audit Documentation (Paper/Electronic/Other)

Summary &
Audit Correspondenc Issues
Programs e of Significant memoranda
matters

Letters of
confirmation
Analyses Checklists
and
representation
 Statutory Audit Report
35

While Preparing Report –points to be taken care of

Qualifications can be
through
Memorandum of
Changes or Specific
Compliance with remarks in the last
Accounting para.
standards to be
mentioned in main
Addressed to report.
SCA/Bank
Format as per SA
700 and 701
 Long Form Audit Report
36

It was introduced by RBI in 1985 and has been revised in 1992-93,
2002 and latest on 05.09.2020
 LFAR includes questionnaires for specialized branches also–
 For branches dealing in foreign exchange transactions
 For branches dealing in very large advances

 For branches dealing in the recovery of NPA

 For branches dealing in clearing house operations (service

branches)
As per RBI circular No. DOS.CO.PPG./SEC.01/11.01.005/2020-21

dated 05.09.2020 on the revision of Long Form Audit Report

(LFAR).
 Long Form Audit Report
37

1.Need for Revision: large scale changes in the size, complexities, business

model and risks in the banking operations, a review of the LFAR format
was undertaken and it has been decided to make the following changes.
2.The format of LFAR, as mentioned below, have been revised:

Annex I for Statutory Central Auditors (SCA)

Annex II for Branch Auditors An Appendix as part of Annex II for the

specialized branches and

Annex III on Large / Irregular / Critical accounts for branch auditors.

Applicability: From 2020-21 and onwards

 Long Form Audit Report ( LFAR)
38
Long Form Audit Report (LFAR) is a questionnaire is
prepared by RBI in consultation with stakeholders including
ICAI, which an auditor has to answer.

The objective is to state facts which have been verified

during the course of audit which maybe required to be
looked into by the management for improving the working
of the bank. Focus not only on advances but also on
operational areas in the branch

It is advisable to discuss the contents with the Branch

manager and get his responses before finalising the
same.

Any matter which is adverse in the main report should

be elaborated in the LFAR ,also the auditor may
disclaim any significant problem faced by him in the
preparation of the LFAR.
 Some Important Points -LFAR Audit

39

• LFAR is an independent report, • Proper documentation & collecting

hence do not give any cross reference Evidence during the audit.
or qualifications/ MOC in LFAR. • Write descriptive answers and avoid
• It’s a very important report for Y/N/NA
readers such as SCA and • Include facts, figures and examples
Management of Bank. to the extent possible in all answers
• Read All questions in LFAR. to the questions.
• Plan & Design Audit Program to • Record the extent of checking /
cover all aspects of LFAR sample selected.
• Prepare separate checklists for each • Obtain Management Representation
point to be reported. from Branch Manager on various
matters based on Audit.
 Data required for LFAR
40

Cash and Balances Advances and

Investments Bills Payable,
with RBI & other Money at Call &
and Deposits Sundry Deposits
banks Short Notice

Profit/Loss
Account , Suspense
Balance Sheet Accounts, Books &
Reconciliation of , other Sundry Records,
Any other Control & Accounts Stationary &
Matter audits/Inspec
Subsidiary tions reports and Stamps
Accounts Contingent
Liabilities
I. ASSETS 1. Cash

Point Revised Clause Comments/Views

No.

1 (b) Cash balances at the branch/ATMs been - ATM attached with the branch only
checked at periodic intervals as per the - ATM includes CDM (Cash Deposit
procedure of the bank? Machine)

1 (c) (ii) Does the figure of the balance in the branch - To verify system generated ATM balance
books in respect of cash with its ATM(s) report as of year end and ATM cash
tally with the amounts of balances with the Tally report
respective ATMs, based on the year end - To report on reconciliation with GL
scrolls generated by the ATMs ? If there is balance
any difference, same should be reported
 2. Balance with RBI, SBI and other banks (For branches with
Treasury Operations)

Point Revised Clause Comments/Views

No.
2 (b) (iii) Other credit and debit entries -
Review Reconciliation Process
originated in the statements provided by
followed through out the year
RBI/other banks, remaining un- -
Report un-responded entries for more
responded for more than 15 days
than 15 days
- Review large transactions mainly at
the year end to ensure there is no
window dressing

2 (b) (iv)
Branch maintains an account with RBI? If - Review the reconciliation items
yes, compelling MoCs and special
Entries originated prior to, but attention items
communicated / recorded after the year end
in relation to currency chest operations at
the branch/other link branches, involving
deposits into/withdrawals from the currency
chest attached to such branches
 3. Money at Call and Short Notice

Not observed in branches (Applicable to branch dealing with treasury)

4. Investments (for branches outside

India)
Not Applicable as SBAs are appointed locally for Branches outside India
 5. Advances

General Instructions :
(i) Theanswers to the following questions may be based on the auditor’s
examination of all large advances.
For this purpose, large advances are those in respect of which the outstanding
amount is in excess of 10% of outstanding aggregate balance of fund based and
non-fund based advances of the branch or Rs.10 crores, whichever is less.
Care- For all accounts above the threshold, the transaction audit/account specific
details to be seen and commented, whereas below the threshold, the process
needs to be checked and commented upon. Comments of the branch auditor on
advances with significant adverse features, which might need the attention of the
management / Statutory Central Auditors, should be appended to the LFAR.
5 (a) List of accounts examined for audit (as per
new LFAR format)

Account No. Account Name Balance as at year Balance as at year Total

end - Funded end – Non - funded

Total A B C=A+B

Total Outstanding of X Y Z=X+Y

the branch

% Examined A as % of X B as % of Y C as % of Z
 5 (b) Credit Appraisal

Point Revised Clause Comments/Views

No.
What, in your opinion, are the major - To report on the basis of review of
5 (b) (i)
shortcomings in credit appraisal etc. appraisal reports of loan sanctioned /
reviewed / renewed
- Special attention to restructuring / fresh
loans / ad-hoc loans in view of COVID
packages by RBI. Compliance of suitable
circulars to be ensured

Any cases of quick mortality in accounts? - To find out such accounts from MIS
5 (b) (ii)
Details of such accounts may be provided in reports / any audit reports of branch
following manner:- - No threshold limit for reporting of quick
Account No. mortality
Account Name - MRL if no such cases
Balance as at year end
 5 (b) Credit Appraisal

Point No. Revised Clause Comments/Views

5 (b) (iii) Whether in borrower accounts - Confirm that the interest rate as per the sanction
the applicable interest rate is letter has been fed into the system. Maker
correctly fed into the system ? checker – changes made to master

- To verify on test check basis wherever there is a

change in rate is correctly fed into the system

5 (b) (iv) Whether the interest rate is - To review Head Office guidelines / instructions
reviewed periodically as per the in this regard
guidelines applicable to floating
rate loans linked to MCLR / - To check applicable MCLR / EBLR (External
EBLR (External Benchmark Benchmark Lending Rate) is updated regularly
Lending Rate)?

5 (b) (v) Have you come across cases of - Timely and comprehensive review/renewal of
frequent renewal / rollover of credit facilities
short-term loans?
- RBI latest notification dated 21.08.2020
 5 (b) Credit Appraisal

Point No. Revised Clause Comments/Views

5 (b) (vi) Whether correct and valid credit rating, if - Verify the requirements of Internal /
available, of the credit facilities of bank's External Credit Rating as per Bank’s
borrowers from RBI accredited Credit policy (Credit rating framework)
Rating Agencies has been fed into the - External credit ratings to be obtained by
system? the agencies accredited by RBI

5 (c ) (iii) Did the bank provide loans to companies for - Enquire with branch, Review the sample
buy-back of shares / securities ? selected and to verify end use of funds.
Certificate to that extent from borrower.
- To report all loan sanctioned for buy-
back of shares/securities
 5 (e) Review / Monitoring / Supervision

Point No. Revised Clause Comments/Views

5 (e) (ii) (b) Is the DP properly computed? - Verify stock / book debt statement
submitted
- Review latest stock audit report
- In case of consortium advance, DP
should be determined by lead bank &
circulated to other member banks
5 (e) (ii) (c) Whether the latest audited financial - To obtain list of non-corporate
statements are obtained for accounts borrowers enjoying facilities in excess of
reviewed or renewed ? that set by bank
- To report where audited financials are
not obtained by the branch
5 (e) (iii) (c) Details of:
 cases where stock audit was required - To refer guidelines issued by HO and to
but was not conducted confirm compliance thereof
 where stock audit was conducted - Adverse features should be duly factored
but no action was taken on adverse in review/renew notes
features
 5 (e) Review / Monitoring / Supervision

Point No.
Revised Clause Comments/Views
5 (e) (iv) Indicate the cases of advances to non- - Obtain HO circular for limit of 10/25 Lakh
corporate entities with limits beyond that is - Verify whether Audited Financial
set by the bank where the branch has not Statement
obtained the duly audited accounts of obtained for 31.03.2022 and comment
borrowers.

5 (e) (v) Does the branch have on its record, a due - Obtain List from branch for advance under
diligence report in the form and manner consortium
required by the Reserve Bank of India in - Verify due diligence report. If the branch is
respect of advances under consortium not lead bank, obtain the copy of diligence
and multiple banking arrangements. If report
yes, list of accounts where such - Report cases where the same is not
certificate/report is not obtained or not obtained
available on record.
 5 (e) Review / Monitoring / Supervision

Point No.
Revised Clause Comments/Views
5 (e) (vi) Whether there is a substantial - To compare valuation reports
deterioration in value of security during - To give MOC if there is deterioration
financial year as per latest valuation report in
comparison with earlier valuation report on
record?

5 (e) (viii) Whether the branch has any red-flagged - To report red-flagged accounts & action
account? If yes, whether any deviations were taken
observed related to compliance of bank's - Review bank policy in this regard
policy related with Red Flag Accounts? - Report deviation observed
 5 (e) Review / Monitoring / Supervision

Point No.
Revised Clause Comments/Views

5 (e) (ix) Comment on adverse features considered - Provide instances of deviation from policy
significant in top 5 standard large advances of bank relating to sanctioning of
and which need management’s attention advances
- To comment related to any adverse
features which in auditor’s opinion need
management attention
 5 (f) Asset Classification, Provisioning of Advances
and Resolution of Stressed Assets

Point No.
Revised Clause Comments/Views
5 (f) (i) (a) Branch identified and classified advances - To verify software used for classification of
into standard / substandard / doubtful / loss advances
assets through the computer system, - Banks to fully automized income
without manual intervention? recognition / assets classification and
provisioning process latest by 30th June,
2021 as per RBI circular dated
14.09.2020

5 (f) (i) (c) classifying the account into SMA-0, SMA-1, - Even within standard advances, if auditor
and SMA-2. Whether Auditor disagrees disagrees it is to be reported here
with the branch classification, details with
reasons to be given
 5 (f) Asset Classification, Provisioning of Advances
and Resolution of Stressed Assets

Point No.
Revised Clause Comments/Views
5 (f) (i) (d) Whether required changes have been - To confirm here that the MOC which has
incorporated/ suggested in the the financial implications and/or change in
Memorandum of Changes asset classification is suggested by the
auditor

5 (f) (i) (e) List the accounts (with outstanding in - Downgraded & Upgraded both the
excess of Rs. 10 crore) which have information to be reported here
either been downgraded or upgraded - Upgrading would need greater audit check
during the year and the reason thereof. for its accuracy
 5 (f) Asset Classification, Provisioning of Advances
and Resolution of Stressed Assets

Point No.
Revised Clause Comments/Views
5 (f) (i) (f) Whether RBI guidelines on income - To confirm compliance of IRAC norms
recognition and provisioning have complied in this regard
been followed.? - To report deviation, if any

5 (f) (ii) (a) Whether the branch has reported account - Yes / No
restructured or rephased during the - To comment, if not reported
year to Controlling Authority of the bank?

5 (f) (ii) (b) Whether the RBI guidelines for - Review various guidelines of RBI
restructuring on all such cases have and HO with respect to
been followed. restructuring including special
packages of RBI for restructuring
permitted due to COVID related
stress
 5 (f) Asset Classification, Provisioning of Advances
and Resolution of Stressed Assets

Point No.
Revised Clause Comments/Views
5 (f) (ii) (c) Whether the branch complies with the - To enquire about account that has
regulatory stance for resolution of exposure of Rs. 2000 Crore and above
stressed assets, including the compliance - If yes, ensure prompt reporting under
with board approved policies in this CRILC.
regard, tracking/reporting of defaults for - To report in case such account is under
resolution purposes among others? SMA category for 180 days continuously

5 (f) (iii) (a) Whether the upgradations in non- - Any deviation to be reported here
performing advances is in line with the - However, appropriate MOC should be
norms of Reserve Bank of India suggested, if warranted

5 (f) (iii) (b) Where the auditor disagree with - MOC to be suggested in such cases
upgradation of accounts? If yes, give - Reasons for such disagreement should be
reasons thereof. reported here
 5 (f) Asset Classification, Provisioning of Advances
and Resolution of Stressed Assets

Point No.
Revised Clause Comments/Views
5 (f) (v) Whether there are any accounts wherein - For FY 2020-21 this was not
process under IBC is mandated but not applicable since forbearance was
initiated by the branch? permitted by RBI
Whether there are any borrowers at the
branch against whom the process of IBC is - To identify the accounts wherein the IBC
initiated by any of the creditors including process is initiated
- To comment on adequacy of provision on
bank? If yes, provide the list of such
that accounts
accounts and comment on the adequacy of
provision made thereto?

5 (f) (vi) a) Have appropriate claims for credit

guarantee (ECGC and others), if Particulars Number Amount
any, been duly lodged and settled? Claim at the
b) Give details of claims rejected? (As beginning of
per the given table) the year
 5 (f) Asset Classification, Provisioning of Advances
and Resolution of Stressed Assets

Point No.
Revised Clause Comments/Views
c) Whether the rejection is
appropriately considered while Particulars Number Amount
determining the provisioning
requirements. Further claim
lodged during the
year
Total A
Amounts
representing
(i) Claims
accepted/settl
ed
(ii) Claims
rejected
Total B
Balance as at year
end (A-B)
 5 (f) Asset Classification, Provisioning of Advances
and Resolution of Stressed Assets

Point No.
Revised Clause Comments/Views
5 (f) (ix) Is the branch prompt in ensuring - Review the process followed by branch for
execution of decrees obtained for execution of decrees and comment, if it is in
recovery from the defaulting borrowers? line with guidelines of HO
Give Age-wise analysis of decrees
obtained and pending execution.

5 (f) (x) Whether in the cases concluded the - Obtain recovery policy of bank & understand
recoveries have been properly appropriation of recoveries
appropriated against the - In case of errors in appropriation, appropriate
principal/interest as per the policy of MOC should be suggested
the bank?
 5 (f) Asset Classification, Provisioning of Advances
and Resolution of Stressed Assets

Point No.
Revised Clause Comments/Views
5 (g) (i) List of borrowers with details of LCs
devolved or guarantees invoked
Sr. Invoc Party Benef Amt Reco
during the year.
No. ation Nam iciary very
Date e Nam Date
e

5 (g) (ii) List of borrowers where the LCs Sr. Invoc Party Benef Amt Reas
devolved or guarantees invoked but No. ation Nam iciary on
not paid with amount thereof. Date e Nam for
e non
paym
ent
 5 (f) Asset Classification, Provisioning of Advances
and Resolution of Stressed Assets

Point No.
Revised Clause Comments/Views

5 (g) (iii) List of instances where - Report if interchangeability was allowed

interchangeability between fund based ONLY AFTER devolvement of
and non-fund-based facilities was LC/Invocation of BG
allowed subsequent to devolvement of
LC / invocation of BG.
II. Liabilities 1. Deposits

Point No.
Revised Clause Comments/Views
1 (c) Whether the scheme of automatic - Check for bank policy for renewal of
renewal of deposits applied to FCNR(B) accounts & system parameters for
FCNR(B) deposits? Where such automatic renewal marked in FCNR(B)
deposits have been renewed, report accounts
whether the branch has satisfied itself - Check process of obtention of documents &
as to the ‘non-resident status’ of the verification of process of continuation of
account holder in non-residential status
depositor and whether the renewal is
- Check bank policy of printing & dispatch of
made as per the applicable receipts /
original receipt & control over them
soft copy have been dispatched.

1 (d) Is the branch complying with the - Check bank policy in this regard & intimation
regulations on minimum balance to consumer for non-maintenance of the
requirement and levy of charges on same
non-maintenance of minimum balance - Check in sample case levy of charges with
in individual savings accounts? intimation given by the bank
 III. Profit and Loss Account

Point No.
Revised Clause Comments/Views
(a) Has the test checking of interest / - Accounting policy / HO closing circular
discount / commission / fees etc. - Instances related to interest on Advances,
revealed excess / short credit of a Discounting charges, Commission of BG/LC,
material amount? If so, give details Locker fees to be reported here
thereof.

(b) Has the branch complied with the - Refer instructions of HO in this regard
Income Recognition norms prescribed - Income of NPAs to be recognized on
by RBI? (The Auditor may refer to the realization basis.
instructions of the controlling - To comment on the basis of sample checking
authorities of the bank regarding
charging of interest on non-
performing assets).

(c) Has the test check of interest on - Accounting policy / HO closing circular
deposits revealed any excess / short - Instances related to interest on Deposits to be
debit of material amount? If so, give reported here
details thereof.
 III. Profit and Loss Account

Point No.
Revised Clause Comments/Views
(d) Does the bank have a system of - In most of banks, Term deposits are auto
estimating and providing interest renewed
accrued on overdue / matured / - To check overdue deposit report
unpaid / unclaimed term deposits - Generally, same is carried out certainly at HO
including in respect of decreased
depositors?
 IV. General 1. Gold/Bullion / Security Items

Point No.
Revised Clause Comments/Views
(a) Does the system ensure that - To take details of name & designation of
gold/bullion is in effective joint officials who have joint custody of the same.
custody of two or more officials, as per - To verify as per system laid down
the instructions of - To report exceptions, if any
the controlling authorities of the bank?

(b) Does the branch maintain adequate - To verify records maintained in this regard.
records for receipt, issues and - To report discrepancies, if any
balances of gold/bullion and
updated regularly? Does the periodic
verification reveal any excess/shortage
of stocks as compared to book records
and if any discrepancies observed have
been promptly reported
to controlling authorities of the bank?
 IV. General 1. Gold/Bullion / Security Items

Point No.
Revised Clause Comments/Views
(c) Does the system of the Bank ensure - HO instructions to be reviewed for existence
adequate internal control over issue of internal control
and custody of security items - Carry physical verification of security items
(Term Deposit Receipts, Drafts, Pay including stamps
Orders, Cheque Books, Travelers' - Review whether last security items have been
Cheques, Gift Cheques, etc.)? Whether promptly reported to Controlling Authority
- Report lacunas observed in the system at the
the system is being followed by the
branch as this is a fraud prone area.
branch? Have you
come across cases of missing/lost items?
 IV. General 2. Books and Records

Point No.
Revised Clause Comments/Views
(a) Whether there are any software / - Numerous software implemented by the
systems (manual or otherwise) used at banks.
the branch which are not integrated - Review software which has an impact on
with financial transactions, reporting or any
the CBS? If yes, give details thereof. core activity which have not been integrated
- To check whether system link SWIFT
system, Structured financial messaging
system, system for lockers etc. have been
integrated with CBS

(b) (i) In case the branch has been subjected to - To obtain confirmation from branch in this
IS Audit whether there are any adverse regard
features reported and have a direct or - To review report, if IS audit is carried out
indirect bearing on the branch accounts - Necessary compliances / explanations,
and are pending compliance? If yes, give wherever required, should be obtained on
details. issues reported in IS Audit
 IV. General 2. Books and Records

Point No.
Revised Clause Comments/Views
(b) (ii) Whether branch is generating - obtain list of exception reports prescribed by
and bank
verifying exception reports at the - on sample basis, verify whether the branch
periodicity as prescribed by the bank followed the instructions issued by Bank w.r.t.
generation and verification of exception
reports.
- Review of such transaction on sample basis
will aid auditor in ascertaining the nature of
transactions and risk involved.

(b) (iii) Whether the system of bank warrants - Review exception reports which are required
expeditious compliance of daily to be generated, reviewed and commented
exception reports and whether there upon on daily basis have been complied with.
are any major observations pending - Issues which have not been complied &
such compliance at the year end. critical items should be reported with status
of the same.
 IV. General 2. Books and Records

Point No.
Revised Clause Comments/Views
(b) (iv) Whether the bank has laid down - Obtain instructions issued by bank for
procedures for manual intervention process to be followed when system generated
to system generated data and proper data is manually altered.
authentication of the related - Also, to review the cases wherein the system
transactions arising there from along data, report, reporting, etc. have been
with proper audit trail of manual manually altered. To identify the reporting
requirement and review the system on sample
intervention has been obtained.
basis to ascertain the authenticity of data.
- In case manual updating of Interest Rate /
refund of excess interest by debiting revenue /
expenditure account. Such transaction should
also be reviewed from manual intervention
perspective.
 IV. General 2. Books and Records

Point No.
Revised Clause Comments/Views
(b) (v) Furnish your comments on data - Data integrity aspect is generally handled at
integrity (including data entry, Data Administration level
checking correctness / integrity of data, - However, the data entry being done at branch
no back ended strategies etc.) which is level which is used for MIS at HO / CO level
used for needs to be reviewed at branch level
- Carry out test check to verify that the data
MIS at HO / CO level.
being entered at branch level is done properly
and there is proper maker checker principle
for verification of the same.
 IV. General 4. Frauds

Point No.
Revised Clause Comments/Views
(ii) Whether any suspected or likely - Check the list of frauds detected at branch.
fraud cases are reported by branch to Check whether the same is reported to higher
higher office during the year? If yes, ups.
provide the details thereof related to - Obtain details related to status of
status of investigation. investigation

(iii) In respect of fraud, based on your - RBI Master Circular dated July 01, 2015 on
overall observation, please provide your “Wilful
comments on the potential risk Defaulters”.
areas which might lead to perpetuation - RBI Master Direction dated July 01, 2016
of fraud. (Updated as on July 03, 2017) on Fraud –
Classification and Reporting by commercial
banks
and selected FIs)

(iv) Whether the system of Early Warning - Refer Bank’s policy in this regard
Framework is working effectively and - Test check few of the EWS which are fetched
as required, the early warning signals by the system. E.g. Under / over insurance of
form the basis for classifying an account assets charged, Heavy cash withdrawals in CC
as RFA. accounts
IV. General 6. Management Information System

Point No.
Revised Clause Comments/Views
(a) Whether the branch has the proper - Verify the MIS system available at branch.
systems and procedures to ensure data Check reports and contents of the same and
integrity relating to all data inputs comment about system and procedures. On a
which are to be used for MIS at test check basis input data from source
corporate office level and for documents and comment appropriately
supervisory reporting purposes. Have
you come across any instances where
data integrity was compromised?
 IV. General 7. Miscellaneous

Point No.
Revised Clause Comments/Views
(a) In framing your audit report/LFAR, - To review
have you considered the major i. Previous year’s Branch Audit Report / LFAR;
adverse comments arising out of the ii. Internal audit/ Snap Audit/ concurrent audit
latest reports. report(s);
iii. Credit Audit Report;
iv. Stock audit Report;
v. RBI Inspection Report, if such inspection
took place;
vi. Income and Expenditure (Revenue) Audit;
vii. IS/IT/Computer/Systems Audit; and
viii. Any special inspection/ investigation
report?
74